Can’t get a bank loan for your small business? Try this financing option as a substitute.

Increasingly, small businesses are turning to personal credit to finance business expansion or ongoing operating costs. Private lending accounted for roughly 30% of the lending market in 2021, with assets growing from $400 billion to over 1 trillion dollars since 2012.

This kind of financing is often characterised by flexible terms, individual solutions and quick access to capital. So if your business needs financing but you do not need to use for a traditional bank loan, here’s how private credit works and how you possibly can access it.

What is a private loan?

The term private credit often refers to non-bank loans made to businesses – examples include peer-to-peer lenders, online lenders and funding marketplaces. This financing option has proven particularly helpful for small businesses recently, provided that banks are not lending to businesses resulting from market conditions and their notorious risk aversion.

Private credit gives firms access to a number of short- and long-term financing options. Your company can then use this financing to finance start-up costs, business expansion or working capital.

Benefits of personal credit

Here are the biggest benefits of a private loan for small businesses:

• Quick access to capital: It may take weeks or months to process your bank loan application. In comparison, loans from non-bank lenders often take lower than a week. Some lenders even offer same-day financing. This is a huge advantage for firms that have to respond quickly to a business opportunity.

• Flexible financing: Private credit is also more flexible when it involves collateral requirements and repayment terms.

• High acceptance rate: Banks prefer to lend to larger, more established firms. Non-bank loans enjoy a much higher acceptance rate for small and medium-sized enterprises.

• Custom solutions: Because non-bank lenders have experience working with small businesses, they’ll provide custom financing solutions to satisfy your company’s needs. For example, some lenders offer asset-based financing, where the loan is secured by the company’s assets.

How small businesses can access private credit

Here are the steps it’s best to take to evaluate your situation, find the right lender and successfully access financing.

Determine your needs:

Start by determining why you wish financing and what you intend to spend the funds on. For example, are you taking out a loan to cover on a regular basis expenses akin to payroll or supplies? Or perhaps you would like to buy latest equipment to extend production or improve efficiency?

Evaluating your current and future borrowing needs will show you how to determine the kind of financing you are looking for. For example, if you have a good idea of ​​how much you would like to spend, taking out a loan may make sense. However, if you are undecided how much money you will want, you possibly can opt for a line of credit.

Prepare the obligatory documents

Before applying for a private loan, it is a good idea to gather the obligatory documents. The specific requirements will vary by lender, but most will wish to see the following information:

• Business information: Not all lenders require a marketing strategy, but you will want to supply basic information about your business. At a minimum, you should provide the name, address, and Employer Identification Number (EIN) of your company.

• Financial Statements: You can even need to supply financial statements akin to a profit and loss statement, balance sheet and money flow statement. This information will help your lender understand the financial health of your business.

• Tax refund: Most lenders will wish to see at least a 12 months’s value of private and business tax returns. Tax returns help the lender assess your financial situation and ability to repay the loan.

• Bank statements: You can even need to supply bank statements for at least six months.

• Business documents: Your lender can even wish to see your company’s articles of incorporation and any relevant business licenses.

Compare your offers

It’s all the time a good idea to get pre-approval from a few different lenders before selecting the one you would like to go with. Applying to at least three different lenders lets you compare potential rates of interest, fees and repayment terms. It also gives you more negotiating power because you do not put yourself in a position where you have to simply accept the first offer that comes your way.

Of course, submitting multiple loan applications can develop into tedious and time-consuming. If you wish a faster solution, think about using an online loan marketplace. By using the loan marketplace, you’ll apply once and receive offers from multiple lenders.

If you are looking for an alternative to bank loans, a private loan is an excellent option. These loans are more accessible and provide your business with the resources it must proceed to grow.

By taking out a private loan, you possibly can access support beyond the application process. However, it is value looking for appropriate non-bank lenders. National Business Capital has been operating in the private lending sector for 15 years; We are already an expert in this market.